Last week, we held our second RFID in Retail and Apparel event in New York City. For one session, we dispensed with a PowerPoint presentation and I interviewed Bill Connell, Macy's senior VP of logistics and operations. I have long been impressed with the smart, business-driven way in which Macy's is using passive ultrahigh-frequency (UHF) RFID technology (see RFID a 'Very Big Part of Macy's Future', Macy's Expands RFID and Beacon Deployments and 'RFID Is Not a Project'), so it was a chance for attendees to gain insights into the thinking of the retailer's top leaders. The session was so well received that I decided to use my weekly column to share some of Connell's comments.

I asked Connell to provide some background on the program. He explained that it began with a pilot at Bloomingdale's, and that research conducted by the University of Arkansas' RFID Research Center (which has since been moved to Auburn University) convinced Macy's senior leadership that using radio frequency identification technology could improve inventory accuracy and replenishment—and that it could provide an uptick in sales. By 2010, Macy's was using RFID handheld readers to perform cycle counts on certain categories of goods that were being RFID-tagged.

"At about that time," Connell said, "multichannel started to morph into omnichannel, and we began to realize that the value of inventory accuracy as it relates to replenishment had an equal value in fashion businesses, if you are in an omnichannel environment and you want to leverage your entire inventory. At that point in time, we were committed to [using RFID on] all replenishment categories, and we began to open it up to fashion categories."

Fashion items were not part of the original thinking as Macy's deployed RFID at its stores, since these items are not automatically replenished, so having a high level of inventory accuracy was not viewed as providing much value at the time. But when the retailer began adopting an omnichannel strategy, it became clear to leadership that there was a distinct benefit to using RFID on fashion items—doing so could improve profit margins by exposing inventory to those seeking it, thereby enabling Macy's to sell more items at full price and at the first mark-down price.

Let me take a moment to explain that in more detail. Let's say you have a lady's dress that sells for $100. There's one of each color and size, and when they are all sold, there is no replenishment. Without RFID, the items cannot be sold online because the retailer would not have enough confidence in the inventory's accuracy (is there really one left?) to offer it to online shoppers. So if the dress doesn't sell in the store, it is marked down and maybe will be sold for $50. If the garment costs Macy's $40, the company makes only $10 on that sale. If it is able to sell the dress online because it uses RFID and thus has confidence that one dress remains, however, it can sell the same item for $100 and instead make $60.